Fracking boom seen raising U.S. incomes by US$1,200 per household

Surging oil and natural gas production bought on by hydraulic fracturing is lifting the U.S. economy by lowering energy costs for consumers and manufacturers, according an industry-funded report.

In 2012, the energy boom supported 2.1 million jobs, added almost US$75-billion in federal and state revenues, contributed US$283-billion to the gross domestic product and lifted household income by more than US$1,200, according to the report released today from IHS CERA. The competitive advantage for U.S. manufacturers from lower fuel prices will raise industrial production by 3.5 percent by the end of the decade, said the report from CERA, which provides business advice for energy companies.

“What really surprised me was how powerful an impact it is having to such a broad base of the economy,” John Larson, vice president of economics and public sector consulting for IHS CERA and lead author of the report, said in an interview. “It makes it to me a story that all Americans really need to come to grips with and understand.”

Oil and gas production are near record levels as a result of hydraulic fracturing or fracking, a drilling technique that frees trapped hydrocarbons by injecting water, sand and chemicals into shale rock. Some environmental groups say tougher controls over the process are needed to prevent water contamination and leakage of greenhouse gases into the atmosphere.

Water Worries

Gas or oil drilling with fracking has been linked to groundwater contamination in Pennsylvania and is straining water resources in parts of Texas that are experiencing drought conditions, said Mark Brownstein, chief counsel for the Environmental Defense Fund in New York.

“If you’re going to make the argument that there are benefits to developing this resource you have to also be prepared to make the argument that you’re going to do everything possible to minimize risks to public health and the environment,” Brownstein said in an interview. “Unless you’re taking the appropriate steps to minimize those risks, you are imposing tremendous costs on communities.”

The report from Englewood, Colorado-based CERA didn’t account for the potential environmental impacts of fracking.

Capital Investment

To calculate the full economic benefit of unconventional production, Larson accounted for capital investment across the production chain from the wellhead to the end user. the report found that from 2012 to 2025, almost US$346-billion will be invested in the sector.

Lower costs are also driving investment in energy-related chemical industries, where more than US$31-billion will add more than 16 million tons of chemical, plastics and related manufacturing facilities by 2016.

“The unconventional oil and gas revolution is not only an energy story, it is also a very big economic story,” Daniel Yergin, IHS vice chairman and author of The Quest: Energy, Security and the Remaking of the Modern World, said in a statement. “The growth of long-term, low-cost energy supplies is benefiting households and helping to revitalize U.S. manufacturing, creating a competitive advantage for U.S. industry and for the United States itself.”

Along with jobs at well pads and production facilities, the energy boom will increase employment throughout the economy, Larson said. By 2020, jobs that can be attributed to higher oil and gas production will reach 3.3 million, according to the report.

Disposable income will rise as a result of lower energy prices, adding US$2,700 per household in 2020 and more than US$3,500 by 2025. Factors that could restrict production — an extension of fracking bans such as the one in New York state or stricter environmental regulations — would result in a rapid decline in the economic benefits, Larson said.

Industry groups such as the American Chemistry Council, America’s Natural Gas Alliance, the American Petroleum Institute, the Fertilizer Institute and the U.S. Chamber of Commerce provided funding for the report.